Heritage Senior Fellow David Burton testified Wednesday before the Senate Committee on Banking, Housing, and Urban Affairs at a hearing titled, “Protecting Companies and Communities from Private Equity Abuse.” Private capital markets are the primary means that entrepreneurs use to raise the capital necessary to launch and grow their businesses, making private equity absolutely vital to the economic health of the United States.
Burton has spent years working on tax matters, securities law, entrepreneurship, financial privacy and regulatory and administrative law issues, and offered insight on the utility of private equity and the problems within the “Stop Wall Street Looting Act:”
“Entrepreneurship is vital to innovation, improved productivity, better products, better wages, and prosperity throughout the country. Private capital markets are by far the primary means by which entrepreneurs raise capital to launch and grow their business. Private equity, broadly defined, is absolutely vital to the economic future of the United States. Private offerings account for at least $2.9 trillion annually in capital raised.
“Public capital markets are in decline due to regulatory overreach. Firms go public much later in their lifecycle, fewer firms go public at all, and ordinary investors typically do not receive the returns from successful startups and entrepreneurial ventures because they go public so much later. Being a public company has become extraordinarily expensive, both in terms of the initial public offering costs, the amount of money you have to spend on lawyers, investment bankers, accountants and so on; but also the continuing compliance costs and the annual regulatory costs, not to mention regulatory risks, the threat of being sued.
“There’s a major effort underway now to apply the policies that have harmed the public market to the private market on a whole host of fronts…the legislation that is a part of this hearing today would be part of that, the ‘Stop Wall Street Looting Act’… The ‘Stop Wall Street Looting Act’ would be the more aptly named ‘Protect Incompetent Management Act’. It basically would erect a high wall, and a moat around management of companies that are failing...Now this may be attractive to corporate elites and corporate management and lobbyists, but it’s certainly not in the interest of shareholders, workers or consumers.
Burton had a notable exchange with Senator John Kennedy surrounding the implications eliminating private equity would have on the economy:
Burton stated: “It’s not just capital and labor, it’s also entrepreneurship and innovation. It takes capital to innovate, to acquire new technologies, and that’s how productivity improves and that’s how wages go up. If you don’t become more productive through technological innovation or better management practices, then you can’t see wages go up over any extended period of time.”
Burton recently released a report that found a federally micro-managed financial system historically protects incumbent firms to the detriment of the American workers, entrepreneurs, and investors.